Tax Break

John Fisher, international tax consultant

Archive for the tag “Barack Obama”

The Greatest Show on Earth?

Can you still name this guy?

Laurence Spiegel was my first political hero. Never heard of him? Don’t worry – nor had Google the last time I checked. The one and only time I worked on the campaign team for a British General Election it was for Laurence Spiegel . That was an important election for two reasons: despite polls showing a clear advantage to the incumbent Labour Government, the Tories won an overall majority;  and the voting age was lowered from 21 to 18 on the grounds that if you were old enough to die for your country, you were old enough to choose the idiots that got you killed. None of this affected me. Laurence Spiegel was the no-hope third-party Liberal  candidate for Hendon South who I don’t think even bothered taking the day off work  (I didn’t see him at Campaign HQ)  and, in 1970, I wasn’t old enough to gain admittance to a cinema to see a war film let alone serve my Queen and country.

I have been following political campaigns ever since and the latest American circus was no exception. But it was too drawn out. There is a bridge in Scotland, the Forth, that is so long that, it is said, when they finish painting it they start again at the other end. In America, it used to be that campaigning for the Presidency started 4 years before polling day ie the day after the previous one.  Watching New Jersey Republican Governor Chris Christie cozying up to Barack Obama in the aftermath of Storm Sandy a week before the election, I could not help feeling that, in a piece of brilliantly cynical political manoeuvering, the world might well be  looking at Obama’s successor in the White House.

Election night was a major disappointment. That statement is clearly true for the 48% of  voters who picked Romney and did not, like so many of their countryment, exercise their constitutional right to stay  home welded to a sofa watching a ball game while trying to break records for calorie consumption. It was also a disappointment for me – and I, disenfranchised by accident of birth, actually wanted Obama to win (or, to be more precise, wanted the Republicans to lose). With the advantage of being 7 hours ahead of New York (some would say 7 light years), I was up with the lark to catch the phut of election night. What a yawn.

Within seconds of  Obama hitting 270 electoral college votes and hence guaranteeing a renewal of his Washington lease, what were the pundits talking about? Was it: what will Obama  do about the future of world peace ?  Was it: what will he do to make America  great again?  Was it: what is the future for social welfare ?  No, sir.  In fact, they were talking about tax. TAX! A subject normally reserved for discussion behind closed doors between consenting adults, was the first thing on the lips of the pros. And “reforming our tax code” even made it into Obama’s victory speech in Chicago (which sounded more like the candidate had beaten himself than Mitt Romney).

Fiscal Cliff? Who’s that?

If you have never heard of the Fiscal Cliff, I suggest you climb right back into that little boat in which you have been drifting without food or water for the last 9 months and enjoy the night sky. As everyone  knows, the Fiscal Cliff was Ben Bernanke’s term for the higher taxes and lower government spending that will kick in next January 1st if somebody does not kick Congress’s ass (“bottom” in the Queen’s English) first.

The Fiscal Cliff is, in fact, the unfortunate coincidence of a number of  economic legislative events coming together to cause an unmitigated disaster: the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers); the end of certain tax breaks for businesses; shifts in the alternative minimum tax;, the end of the Bush tax cuts;  and the beginning of taxes related to President Obama’s health care law. At the same time,  spending cuts previously agreed upon will begin to go into effect. If nothing is done, some experts are predicting a cataclysmic effect on GDP and unemployment.

The question you HAVE to ask yourself is “How did the world’s leading nation get into this mess in the first place?” You couldn’t make it up.

The Bush tax cuts (the famous bits are the lower tax rates on dividends and capital gains) could not be pushed through the front door of Congress back in 2001 and 2003 so they used something called the reconciliation process that allowed them to be imposed temporarily until the end of 2010. By 2010 the House of Representatives was resembling the battlefield at Gettysburg, and Congress extended them for 2 years. As politics go, that is kids’ stuff.

Four more years!

In the summer of 2011 the sparks were really flying. Congress needed to raise legal debt ceilings for the federal government, otherwise the US was going to default on its Sovereign Debt. The Republican controlled House of Representatives was not playing. At the eleventh hour, a compromise was reached whereby, default was avoided and  a Bipartisan Committee was established to produce a plan to reduce the deficit over 10 years by $1.2 trillion by late November. There was a  sting in the tail that either  arose from a genuine desire to get things sorted out or  the irrational hatred between the two sides of the House . The House decided that, if the Committee could not reach a conclusion, automatic, and horrendous,  cuts would start to kick in 2013. The Committee, its members too busy scratching each other’s eyes out,  didn’t make it.

All that remains for us to do now is to sit back and enjoy the fireworks coming out of the lame-duck Congress. Presumably a solution will be reached at midnight on December 31 (or, with retroactive effect, on January 1). In American politics, after a massive buildup, most things end in a Phut rather than a Bang.

Tax and the C.T.

Wicked, cool and awesome!

Dan Brown’s “The Da Vinci Code” was an unlikely international bestseller. The Louvre, the Vatican and a French Church would hardly be expected to be up there amongst  the 1001 places  Joe Sixpack must visit before he dies. However, looking at what it did for interest in religion, can you imagine what a boon it would have been for tax advisors if, rather than the Da Vinci Code, Brown had woken up one morning and come up with “The US Tax Code”?

Instead, while trial lawyers have been glorified in American literature from Harper Lee’s Atticus Finch to Scott Turow’s Sandy Stern – and deified in TV series like Perry Mason and L A Law, tax attorneys have had to suffice with John Grisham’s “The Firm”. That book and spin-off movie did for the tax profession what the Taliban has done for Afghan tourism.

And that  just covers the lawyers. Tax accountants are only ever portrayed as semi-bald grunts in man-made fibre suits staring at the world through goldfish-bowl, grime encrusted spectacles.

Heeeeere’s Johnnie!

But now, thanks to the antics of  the most over-budgeted, long running reality show on Planet Earth,  that may all be about to change. “Washington D.C.” has finally gone tax.

Having watched patiently as Chief Justice Earl Warren tiptoed through the Civil Rights revolution of the sixties, Warren Burger handled both the Watergate scandal and Roe v Wade in the seventies and William Rehnquist put paid to Al Gore’s presidential hopes at the turn of the century – we have to say “Glory be” to Chief Justice John Roberts. A few short weeks ago Roberts pushed tax to centre stage. And with a newly emboldened President Obama stepping out last week to further the crusade, it must only be a matter of time before the tax profession is inundated with bright young things looking for self-actualization in their careers while Hollywood comes knocking at our doors.

I am talking of course about the Obamacare case and the Bush Tax Cuts. ” We get the Bush Tax Cuts. But Obamacare? Tax? WHAT ARE YOU ON?” I hear you politely ask . Well it turns out that the central feature of Mr Obama’s first (and possibly only) term in office – his Affordable Care Act (Obamacare)- was not about bringing a basic right of modern civilized society to the people of the United States – the right to be cared for when you are sick. No sir. The conservative Mr Roberts, in providing the swing vote in his politically divided court, surprised everyone by abandoning the standard right-wing “If they don’t know how to look after themselves, let them die” motto and confirmed the law on the grounds that the penalty that would be imposed on anybody not paying for health insurance is a tax. Fortunately, way back in 1913 – when William Howard Taft was still President and not yet Chief  Justice – Congress had the foresight to pass the 16th Amendment to the Constitution permitting a federal income tax; otherwise, to paraphrase Oscar Wilde “people would still be dying beyond their means”.

“If they would rather die,” said Scrooge, “they had better do it , and decrease the surplus population.”

I am from the old world and, while I genuinely love much about America, I fail to understand how they get caught in these idiotic outdated philosophical spiders’ webs. While individual liberty is clearly sacrosanct to the American way of life leaving little place for a Hobbesian social contract, do they not realize that Health Care is not just about the individual? What about dependents who either lose their financial support because it went on chronically expensive medical care, or lose their provider who skimped on the treatment. And it is no use waving Medicaid and Medicare as the safety net because you need to meet certain quite weird conditions to qualify.

Then last week it was the turn of the  Bush Tax Cuts. As everyone knows by now, thanks to a marvellous quirk in the US legislative system, various laws introduced during the W years include romantically named “sunset provisions” meaning that they have sell-by dates after which they have to be thrown out. Having already been extended, to cut a long story (which could be the subject of a Dan Brown book) short, if the president and Congress do not get their act together quick, come New Year’s Eve as the ball drops in Times Square, taxes will shoot up and fiscal spending will shoot down. America will then walk off what journalists are calling a “Fiscal Cliff”. Recently it has started to look like the Democrats and Republicans are so busy bashing each other that, similar to a Hannah Barbera cartoon, they will take their fight over the cliff edge and, only when they look down, take the country (and the rest of us) with them into deep recession. 

Are you on less than $250,000?

Barack Obama has called for an extension of the cuts but, in a clear electioneering move, only wants them extended for people earning less than $250,000 (which, for most people who are not American, is quite a lot of money). Everybody else would be sunsetted. The Republicans of course will have none of this – all or nothing – and even the democratic former Speaker of the House of Representatives Nancy Pelosi wants $1 million (I wonder how much congressmen earn?). As mentioned in a previous post, I am getting used to the concept that in America presidents do not have any real say over fiscal policy and just act as a vociferous lobby. However, I do wish that the gentleman in the White House would explain how he suggests implementing this quarter of a million bucks cut-off. The Bush Tax Cuts, contrary to popular belief, are not just about shoving up long-term capital gains tax rates and making dividends ordinary income. In addition to tweaking of personal tax bands and the top rate (which are irrelevant in this context) there are loads more provisions. What, for example, does Mr Obama intend to do about Alaska Native Settlement Trusts that allow tax to be paid at the lowest marginal individual rate? And what about Marriage Penalty Relief?

Meanwhile, as the world struggles with recession and America itself struggles in Iraq and Afghanistan, the United States House of Representatives last week spent 5 hours of taxpayers’ money (spread over 2 days) debating and voting to repeal the Health Care Act.  Nobody, but NOBODY, expects the act to be repealed in this Congress but we are already hearing Mitch McConnell, the pugilistic minority leader in the Senate warming up for a fight with Harry Reid, the Senate Majority Leader.

While they are at it, they could set in process the repeal of the 16th Amendment (I don’t think they can do that by themselves) and, as Ron Paul the Libertarian candidate for president would like, get rid of income tax as well.

At least HE knew he was a B-movie actor

Perhaps, on reflection, rather than seeking stardom for our profession, we should encourage everyone else to switch off their sets. Maybe if those immature children in Washington were aware that nobody was watching them, they would start to behave like adults. Fat chance. I think I will go for fame and fortune.

Washington the dream factory

Who were Rodgers and Hammerstein trying to kid?

Last year, the Oscar for Best Actor was awarded to someone who feigned inability to speak coherently. This year, the same award went to someone who chose not to speak. The 2012 Academy Award for Best Supporting Actor went to that prize’s oldest recipient best known for playing a singing sailor whose most memorable line, nearly 50 years ago, was whistling his children to attention that they might greet the evergreen Julie Andrews who tried to con everyone into thinking she was a nun.

I think it was Founding Father Benjamin Franklin who adopted the ancient line “Speak little, do much” and Hollywood appears to finally have caught on. The candidates for US President, on the other hand, have clearly not taken a leaf out of Hollywood’s book and now, in the wake of that Muppet Show cast vying for the Republican Nomination whose “Pin The Tail on The Donkey” approach to corporate tax rates I dealt with in a previous post, President Obama has now weighed in with a load more useless verbage on the subject.

Measured by the higher level of  tax in his proposal – 28%, the relevant bits of the president’s Federal Budget Proposal for 2013 are, by definition, more responsible than those of his competitors. But, other than talking vaguely about a broadening of the tax base to cover the drop from 35% and ensure a fairer, leaner system, he was a bit short on the facts. He wants to close loopholes but, given that there are interest groups jealously guarding every one, he does not say which ones. He wants to encourage manufacturing with a 25% rate but does not note that some of the biggest loopholes are in that sector. He wants to encourage relocation of activities back to the US from abroad and proposes a minimum tax on overseas profits of which he provides no details.

Go on. Admit it. You thought the last President of Chile was a General.

Non Americans (that’s me, folks) find all this lack of detail strange. Among the 34 members of the OECD (the rich nations’ club) the only nation other than the United States to run a pure presidential system is Chile – the French have a hybrid approach that includes a prime minister who has the support of the National Assembly, and everybody else runs some form of parliamentary system.  As such, in countries that still call football football, when the Head of Government comes up with a budget there is usually a fighting chance that, at least most of it, will be passed since, overall, he has the confidence of the parliament. That is what we Old World people understand Heads of Governments are supposed to do. Otherwise we could employ a secretary to announce legislation and save a lot of time,money and teeth whitener.

Not in the US. When President Obama made his Budget proposal it was a request to Congress and there is not the faintest risk of it becoming law – in other words he could join the dream world of the irresponsible opposition even though he is the incumbent. Pure Hollywood.

There are, of course, certain anomolies in the US system. The president has to ask Congress to declare War which makes a lot of sense, considering the amount of expense and gore a silly mistake can cause. BUT, he does have the power to turn out the lights on all of us by messing around with those secret codes in the briefcase always carried by a military man at his side.

Her typing wasn't half bad either

On second thoughts, I think I will keep taking the US president seriously. As much as I value the professional abilities of my secretary, if she had her “finger on the button” I would be nervous every time she went for the remote control to adjust the airconditioning.

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